Bitcoin's 'Segwit2x' Scaling Proposal: Where the Startups Stand

New information is coming out about a proposal that some hope could lead to a long-awaited increase to bitcoin’s transaction capacity, a stagnant feature that many in the community believe is holding back the cryptocurrency’s growth and utility.

Although there have been past efforts aimed at putting an end to bitcoin’s two-year scaling debate, the new ‘agreement‘ has perhaps earned unprecedented support from companies and mining pool operators, with over 50 bitcoin companies and firms representing more than 80% of bitcoin’s mining power signing the proposal.

The goal, according to the announcement blog post released last week, is to move forward with two changes: an optimization called Segregated Witness and a 2MB block size increase. Although, the latter is arguably the main point of contention, since it could potentially lead to the creation of two bitcoin networks if not all users agree with the change.

Beyond that, though, details have been thin. The community and even some of the participants were at least initially confused about aspects of the plan: Which upgrade is supposed to come first? Where’s the code? Do supporters think it will lead to a network split? (Is that the goal?)

However, new details are coming out which might not totally clarify the situation, but help show how companies involved are thinking about these questions.

One new development is that participants are beginning to put together code – another point that sets the proposal apart from past attempts to come to a consensus on a solution, such as one widely known as the Hong Kong agreement.

For example, while bitcoin technology company BitGo did not sign the new agreement, the company has “pledged technical resources” to formalize it into working code.

“The plan we’re putting together is laser-focused on building a deployable [minimum viable product] for our mission … All work will be done in the open, and we welcome constructive debate,” BitGo co-founder and CEO Mike Belshe wrote in a leaked email describing a rough roadmap called ‘Segwit2x’.

(BitGo did not respond to CoinDesk’s requests about its involvement in the effort.)

The roadmap tentatively schedules the first software version release for 16th June, at which point the open-source community can give their feedback. If all goes according to plan, bitcoin users will be able to download the new, finalized bitcoin software about a month later on 21st July.

The three-day-old implementation so far includes contributions from Bloq co-founder and Bitcoin Core contributor Jeff Garzik. (Perhaps it’s worth noting that some of the technical feedback has been critical and partly politicized, so far.)

Other developers, such have Lightning Network co-inventor Joseph Poon, have also expressed an interest in contributing to help build a safe, new version.

Strong agreement

Against this backdrop, some participants initially seemed not to agree, or at least were confused by the terms of the agreement.

However, when contacted, companies involved largely seem to be on the same page. Though initial feedback from the community was mixed, all companies that responded said that they agree to move forward with the proposal.

“I think it’s an important step towards breaking a stalemate that is causing bitcoin to stagnate,” said Joshua Scigala, CEO of bitcoin-gold exchange Vaultoro, though he mentioned that he would have liked to have seen “a couple of more months to prepare”.

Valery Vavilov, CEO of blockchain technology company Bitfury Group, told CoinDesk that the agreement “has not changed” in light of community responses, and SFOX co-founder and developer Akbar Thobhani said much the same.

Others were more diplomatically short on the matter.

“We understand there are different visions for bitcoin among the community, and Coinbase is supportive of both on- and off-chain scaling improvements,” said a company representative.

That said, several companies on the list, including DCG and its subsidiaries, Purse, Blockchain and Xapo declined to comment.

Bitcoin Core?

Following the proposal release, one of the key points of community contention is that Bitcoin Core contributors, the volunteer developers behind bitcoin’s primary software, were absent from the meeting and the signed agreement. Some of these developers stated in the aftermath of the proposal that they don’t think the plan is technically viable and that the timeline is too short.

Others have gone as far as to argue that the agreement is a political move – a way to replace Bitcoin Core developers, who work on a volunteer basis, with another team.

On this note, some companies mentioned that they are simply frustrated with the lack of scaling progress. For one, since transaction capacity has remained stagnant, transaction fees have swelled, affecting users and businesses.

“Many Bitcoin Core developers stopped listening to businesses, miners and users over two years ago. If they are unwilling to compromise, then the compromise will move forward without them,” said Yours CEO Ryan X Charles, adding:

“We’re supporting bitcoin – and it goes without saying that the individuals responsible for bitcoin will change as the project ages. We’ll support these individuals (or groups), whomever they may be,” he said.

SFOX’s Thobhani suggested that the release of the rough proposal is just a first step that could lead to wider consensus.

“This is a process and not a stance,” he said. “I am hopeful that through this process we will identify a way to discuss different views and find a path forward.”

On the other hand, some signed the agreement with the idea that they would like the team to stay onboard.

“We really hope the agreement will ultimately reunite the community. Having the Bitcoin Core developers aboard is a vital part of the plan for Bitwala,” a representative from Bitwala said.

“We have the utmost respect for the Bitcoin Core developers and we are working to create an agreement and technical roadmap that suits everyone and is best for the future of bitcoin,” Vavilov said.

Onward with a split

Participants that responded also appear to agree that the proposal, including the hard fork, will happen.

“If a hard fork is the only way to solve the scaling problems – among other issues – then that is how it has to be,” as Streng put it.

But, following the change, companies have different ideas about what the outcome will be.

“We believe a hard fork with roughly 75% support from business, miners and users would be strong enough that it would thrive even in the midst of two competing chains,” Charles said.

Others think that two chains are unlikely to survive, with the new ‘Segwit2x’ coin pulling in the majority of the bitcoin ecosystem.

“Strong consensus is needed to initiate the hard fork, so seriously competing chains are unlikely. Probably the less popular chain would remain a niche,” said MONI marketing lead Ilkka Montin.

Some feel that the 2MB component is a critical piece.

“We’re at a point where SegWit alone won’t be enough for the current needs of the network,” said Ripio CEO and co-founder Sebastian Serrano.

On the other hand, some companies mentioned that they also support other methods of deploying SegWit on its own, which has stalled due to lack of support from mining pool operators. In this way, some see another controversial proposal, called UASF (for ‘user-activated soft fork’), as another potential way forward.

Scigala said that his company is looking at how to “safely participate”.

Although it’s complex, the downside, like with a hard fork, is that the method of upgrading bitcoin could also lead to a chain split. One difference, according to UASF advocates (who appear to be moving forward with what they call a bitcoin “Independence Day” slated for 1st August) is that a soft fork is a backwards-compatible change, while a hard fork isn’t.

“Nobody in the community would deny that scaling is needed. SegWit had been blocked by some powerful miners and those miners want a higher block size, so now it’s either UASF or SegWit with a higher block size,” said a representative from Bitwala, who concluded:

“Either way, most parties involved have agreed to activate SegWit one way or the other.”

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has ownership stakes in BitGo, Bitwala, Blockchain, Coinbase, MONI, Purse and Xapo.